By Gerard Wynn
LONDON, March 14 (Reuters) - The benefit of a significant investment in a flat-lining British economy is likely to trump cost concerns over plans to build a new nuclear power plant.
The government may announce as early as next week a power purchase agreement with the French utility EDF, coinciding with a Budget which will have little to cheer in a country teetering on the edge of a third recession in six years.
Britain will probably be the first industrialised country to start building a new nuclear power plant since the Fukushima disaster two years ago.
Whether the contracted price, expected to be around 9 pence per kilowatt hour (kWh), is good value for money depends on factors including: is it in 2013 money or nominal prices; what is the expected commissioning date; and what is the length of contract and how will it be indexed to inflation?
In addition, this political decision will also hinge on less tangible factors including: on the negative side, the liability for waste disposal and radiation risk; and on the positive side, an investment in the UK economy, plus the benefit of a baseload, flexible source of low carbon power.
The cost of energy technologies can be compared according to economic cost or public support.
Levelised cost is usually measured in dollars per megawatt hour (MWh) and is a function of discounted lifetime cost and lifetime power production.
A power purchase agreement of 9 pence per kWh is equivalent to 90 pounds per MWh, and is assumed to be in 2012 prices.
That would be competitive with the levelised cost of most technologies, given that Britain has ruled out new coal without expensive carbon capture and storage (CCS).
Only gas and gas fitted with CCS are more competitive for new build projects starting construction in 2018, at 85 pounds and 89 pounds per MWh, according to data from the Department of Energy and Climate Change (DECC), as published in October last year in "Electricity Generation Costs". (See Chart 1)
A 90 pounds contract price for nuclear would equal or undercut the cost of new build projects starting in 2018 for onshore wind (90 pounds); co-fired coal and biomass (92 pounds); coal with CCS (111 pounds); offshore wind (113 pounds); biomass (121 pounds); and solar power (129 pounds), according to the DECC study.
Gas with CCS may therefore be Britain's most obvious plan B for zero carbon power without nuclear.
Chart 1: (page 11)
There are two questions about such cost comparisons: what rival technology is the most sensible benchmark for nuclear power; and how quickly will the costs of less mature, rival technologies like offshore wind and CCS fall?
Regarding benchmarking, nuclear is baseload, dispatchable (but less flexible than gas and coal), low carbon and with low marginal costs.
The best comparisons may be hydropower (now fully exploited in Britain) and tidal power (untested and probably hugely expensive), both of which tick all those boxes.
Biomass and fossil fuels with CCS are zero carbon (although there is a question mark over biomass), dispatchable, baseload options but they have high marginal (fuel) costs.
Zero carbon and zero marginal cost wind and solar power are neither baseload nor dispatchable and require grid expansion or expensive battery technology to reduce their intermittency.
Given all of the above, the best benchmarks may be CCS and tidal power, both of which are untested, and large-scale offshore wind.
Regarding potential cost reductions, offshore wind is a good example.
In its 2011 "Renewable energy roadmap" DECC targeted a reduction in offshore wind power costs by 2020 to 100 pounds per megawatt hour, still more expensive than a 90 pounds nuclear tariff.
Alternatively, the cost of a 90 pounds nuclear power purchase agreement can be compared with support rates for renewables, through an existing tradable certificate scheme.
The value of renewable obligation certificates (ROCs) is set by an administrative buy-out price (40.71 pounds for 2012/13) plus the amount of redistributed penalty payments for non-compliance, which adds roughly an extra 5-10 percent, making for a total ROC value presently of about 42 pounds.
Renewable power generators get a certain number of ROCs per MWh plus the wholesale power price.
For example, onshore wind gets 0.9 ROCs per megawatt hour, which works out at around 38 pounds, plus a year-ahead wholesale power price of about 56 pounds per MWh, adding up to 94 pounds.
Various technologies receive the following, in 2012 pounds per MWh: co-firing biomass with coal (77 pounds); onshore wind (94 pounds); hydropower (98 pounds); dedicated biomass burning (119 pounds); and offshore wind, large-scale solar and geothermal power all on 140 pounds.
So a nuclear tariff of 90 pounds so far appears competitive both according to a levelised cost and subsidy comparison with alternative technologies.
But there are enough other considerations to allow both supporters and detractors to claim the economic argument.
Given the scale of capital costs it has to recoup, EDF may insist on a power purchase contract of more than 30 years.
That is longer than the present ROC scheme contracts (20 years) or its replacement scheme from 2014 (15 years).
But nuclear power plants will last longer than wind farms and solar panels: EDF anticipates a lifespan of 60 years for its proposed giant 3.3 gigawatt Hinkley Point C power plant.
And then there are the big, less tangible items: the benefit to the UK economy, and the waste disposal problem.
Regarding waste disposal, EDF will fully fund the decommissioning of its site and pay its share towards disposing of Britain's nuclear waste.
The discounted, estimated clean-up cost at the country's main nuclear waste site is 37 billion pounds and rising, according to the National Audit Office.
That does not appear to include the cost of long-term storage in a geological disposal facility whose site and therefore costs are still unknown.
Meanwhile, EDF is eager to trumpet a 2 billion pounds investment in the regional economy over the lifetime of its proposed project, and 25,000 new jobs over the construction period.
That might be the clincher for the British government. For the rest, and in answer to the question in the headline above - 90 pounds per MWh is competitive, but the uncertainty over waste disposal is a big concern.